Negotiating rents has been one of the key issues during the coronavirus crisis: most landlords have been accepting rent deferrals or offering discounts altogether to help their tenants.
But Supermarket Income REIT PLC (LON:SUPR) has stood out after receiving all of its rents for March even before the expected deadline.
READ: Supermarket Income REIT maintains dividend plans as 100% of rents roll-in
The company is a real estate investment trust (REIT), meaning it owns buildings leased out to income-producing businesses.
As the name might suggest, Supermarket Income provides spaces to grocery stores, namely Tesco, Sainsbury’s and Morrisons.
These venues have remained open as essential services experiencing unprecedented demand, with March sales rising 20.6% compared to the same period last year.
The average household spent £63 more on each individual shop, for an extra £1.9bn spend countrywide.
Demand was partly driven by people making sure they had enough stock in their cupboard, but it was mostly a shift from the eating out market.
In more times, Britons usually spend 30% of their food budgets outside their homes.
While the stockpiling trend may be over, restaurant and pubs are set to be shuttered for another while - so, April is set to see another increase, though the pace of growth may be slower than March.
Supermarket Income also reported a month out of the ordinary.
The property owner received 100% of its expected rent payments for the March quarter even earlier.
Considering the current environment, the next period is likely to see a similar trend.
What’s more, two rents were increased as per contract.
The way leases are structured allow for uplifts in rentals based on inflation, making the monthly payments predictable and formulaic.
In short, tenants agree on rentals based on the cold, hard numbers.
Following reviews at one of its Tesco superstores and a Morrisons supermarket since the start of the year, the total rent from the portfolio increased to £28.4mln from £28.03mln.
As a result, the firm is on track to declare the latest quarterly dividend on time, scheduled for 8 April.
It is also keeping the target of 5.8p per share for the total dividend.
At a time when most companies are postponing or chopping payouts, Supermarket Income stands out as one of the few distributing capital.
After the payment of the third-quarter dividend, the company expects to have cash balances of £32mln, with a net loan-to-value ratio standing at 37.5%, well within the 60% required in its banking covenants, and interest cover will be 6.8 versus a covenanted 2.0.
The firm also what it calls “very supportive” lenders, considering its unusual position among the real estate sector.
“We are the least of our banks’ worries right now, they are very happy to have us as a customer” said Ben Green at Atrato Capital, the company’s investment adviser.
While the future remains foggy for everyone, the short-term may come with interesting opportunities to acquire new spaces from other companies needing to make a sale.
Purchases so far have only been supermarket properties with long unexpired lease terms typically a targeted average lease term of more than 15 years.
They have been leased to the UK’s big four supermarkets on upward only rental contracts, to provide investors with income security and considerable inflation protection.
Investments may in future be made in assets let to other supermarket operators such as Aldi, Lidl, Marks & Spencer or Waitrose.
Following February's acquisition of a Sainsbury's store in Hessle, Yorkshire, Supermarket Income REIT had £524mln in gross assets.